Money & Rights

Supporting students

Annie Shaw advises on how you can help younger family members going on to higher education

So you've got a grandchild going off to university. whether you come from a long line of PhD, or your grandson or granddaughter is the first person in your family to enjoy higher education, it is a proud moment.

It is also a rite of passage, as the young person may be about to live away from home for the first time and will certainly have control of large sums of money in the form of student loans.

So what can you, as a grandparent, do to help?

The short answer is "quite a lot".

Financial help is going to be the most important contribution you can make. Tertiary education is an expensive business, and your grandchild will be incurring unaccustomed costs that range from accommodation and fuel to buying books and paying for transport, all of which were probably paid for by a parent while they were at school. If you want to give your grandchild cash, don't be tempted to pay down their student loan. Instead, make sure to use the money to keep any other borrowing to a minimum.

Why you shouldn't worry about student loans.

Student loans are not like personal loans, mortgage or credit card debt where the more of the debt you pay off, the less you will owe,- meaning whether the debt is paid off more quickly or, if you stick to the borrowing term, you pay less each month. Student loans do not work like this.

Student loan repayments work like a graduate tax; the amount you pay is related to earnings, not how much you owe. Although interest starts to accrue immediately, you only begin to repay your loan from the April after you graduate. No matter how much you owe (or how much you have paid off), you will still pay the same each month. You pay nothing if you earn less than £25,000 a year, and then you repay nine percent of earnings over this amounts. So, if you own £50,000 and earn £24,000 you pay nothing at all, while if you owe the same £50,000 but you earn £30,000 you pay £450 a year, or £37.50 a month (nine percent of £30,00 minus £25,000).

However, it doesn't matter if you owe £30,000, £40,000 or £50,000, because if you earn £30,000 you will still pay back £450- the sum is related to our earnings, not your debt.

Perhaps surprisingly, after 30 years any outstanding debt is written off.

Last year the Institute for Fiscal Studies (IFS) said in a report that as many as 75 percent of students will not repay their loan in full within 30 years of graduating and will have the remaining debt written off.

So, if you repay some of the grandchild's student loan debt you are, in short, giving a gift to the government, which will need to write off a small amount after 30 years. It will make not one jot of difference to the amount that the child will need to repay each month or how long the loan lasts.

The only exception to this is if the child has borrowed only a very small sum, under the student loans scheme- so can easily pay it off-or if they have borrowed the maximum permitted and are going to be very high earners, meaning their monthly repayments will be high.

A rule of thumb is that it is unlikely to be worthwhile trying to pay down student debt unless the grandchild will be in a job with a current average salary above £45,000 (the average graduate in England earns £18,244 on year after leaving university).

If you want to help a child financially, look to clearing other debt, such as bank overdrafts, first.

Help your grandchild become financially aware

Students are bombarded with information about banks, cards, vouchers and discounts when they start university. You can help by advising them on the right products

Bank accounts

The key financial tool after a student loan will e a bank account. Since more than four in ten graduates stay with their student bank until they are well into their thirties, and many people stick with their first bank for life, there is huge competition for student customers, with an array of perks and incentives to encourage them to sign up.

The most valuable perk is an interest-free overdraft. Look for an account that gives highest sum for the longest period interest free. Look also at the repayment terms on graduation. Some banks demand repayment right away, or start to impose huge charges. Others will be more generous, offering transition to a graduate account or rate. If your grandchild is likely to need this breathing space after graduation, make sure they take it into account when choosing a bank, or can switch to a graduate account elsewhere. Less important, but not to be ignored, are non-monetary perks such as a railcard, commission-free foreign currency exchange or shopping vouchers. A free young person's railcard is worth having, particularly if your grandchild ll be studying away from home. While vouchers and gifts are good to have, the value of them is unlikely to beat the advantage of a better overdraft facility.

Last year's best buys were Nationwide and Santander- the latter offered a four-year railcard. Deals change from year to year, so look out for the promotions when they come out. Over and above this, urge your grandchild to avoid other borrowing, particularly ultra-expensive payday loans, which are now marketed to students and can lead to a cycle of debt and a damaged credit record.

Phone and internet

The gift of a good phone contract will be much appreciated, particularly if students won't have access to a landline. You could consider simply making monthly payments, you could include the grandchild on your own contract if your provider offers a family deal, or you could take out a contract in your own name and simply hand the child the phone.

Do be careful with the last option, as potentially you will be legally liable to continue to make payments under the contract- for instance, if the child loses or breaks the phone. If you take out insurance in your own name, make sure that the phone and contract are covered for use by a third party such as a grandchild. If your grandchild is living in a hall of residence, they will have internet provided. If they are sharing a flat, they will need a broadband contract.

You can help them research a good deal. Beware ultra-cheap deals with a capped tariff for shared accommodation, as students will all too easily go over the limit and incur extra charges. Be wary of long term tie ins which may incur penalties for early cancellation if the grandchild moves out of their accommodation.

A data contract on a phone might be more suitable for use at their accommodation if they have access to internet on university premises.

Television license

Your grandchild will need one if they want to watch TV in their own room in a hall of residence or a shared flat. They cost £150.50 for a year, and paying for one would make a great gift and might even gain the young person a cash bonus if flatmates chip in for their share. First check the website tvlicensing.co.uk to see if the child is already covered by a licence elsewhere, perhaps by their parents' licence at home, if they watch TV on a battery-powered laptop or tablet with no mains connection.

NUS student card

This is an invaluable student discount card. Your grandson or granddaughter will want one and will need to apply for it themselves, but you could offer to pay for it. A one-year card costs £12, or £32 for three years.

Personal insurance

The average student goes off to university with possessions worth nearly £3500. Many will be worth insuring, particularly laptops, phones and bicycles. Before you shell our for cover, check they are not covered in their parents' home policy and that any insurance you buy will in fact cover potential loss.

Many policies will not cover accommodation occupied by non-family members- such as shared flats. So check the small print before singing up.

Cars and car insurance.

The costs of a young person running a car away from home, and risks associated with driving and partying, are obvious.

However it will be useful for some students, and a grandparent can help with the costs. But never be tempted to insure the care at the student's home address when the car is kept for most of the year elsewhere. Nor should you name yourself or a parent as the main driver if it is mainly driven bu the student, as this is a form of insurance fraud known as 'fronting'. It is, however, in order to have an older person named on the policy as an additional driver, and this could even bring the insurance cost down.

Guarantee the rent

The days are probably gone when wealthy grandparents could consider buying a property in a university town for their grandchild to live in and rent out rooms to fellow students. Stamp duty, tac changes and riles for landlords have made this a much less attractive idea unless you are already a professional landlord.

Your grandchild will probably rent from just such a landlord, who will in all likelihood ask for a guarantee that the student will not default on payments. A parent will usually do this, but if you take on the role, do make sure that you are guaranteeing only your own grandchild's rent in a shared flat and not that of everyone who is subject to the tenancy agreement.

If you get it wrong, you could find yourself with a big bill of one of your grandchild's flatmates fails to pay their rent.

Clip coupons

If you are a keen reader of magazines that feature money-off coupons for groceries and other items, clip them and pass them on. You may not fancy what is on offer but the discount could be a boon to a cash stripped student.